Lehman Brothers has announced changes to several of its global indices, two of which affect CMBS. The changes will become effective July 1, 2004.
The first change imposes a tranche constraint of $25 million on CMBS transactions in the U.S. Aggregate Index. "We wanted to reduce line items," said Lehman CMBS analyst Jeff Mudrick. "CMBS was only about 2.7% of the index, and it had by far the most line items." The change will have only a marginal impact on CMBS, bringing its share of the index down from 2.69% to 2.61%. The primary effect will be on ratings composition, with single-As likely to fall from 4.5% to 3.3%. ABS components in this index were already subject to the $25 million minimum.
In addition, the firm will expand its CMBS Investment Grade Index to include privately issued securities that are registered as 144A. This change reflects the trend during the last several years toward offering triple-B and single-A rated classes privately. "This should bring the majority of mezzanine classes issued over the past four years back into the fold of the index," analysts penned in their latest weekly outlook. This change does not apply to the Aggregate Index, which cannot include privately issued securities.